Special Report | February 2016 | By Daniel P. Smith

The Growth 40

How growing quick serves decide it’s time to enter a given market.
Top QSR chains move into growing US cities to capitalize on restaurant potential.
Tucson, Arizona, is the No. 1 medium market for limited-service restaurant growth. iStockphoto / David Sucsy

In his quest to build Yalla Mediterranean into a recognizable national name, Dave Wolfgram acknowledges he stands at the earliest of early stages.

Within months of Chicago-based Victory Park Capital’s acquisition of the 50-unit Daphne’s California Greek chain in mid-2014, Wolfgram, the concept’s newly appointed president and CEO, set the fast-casual chain’s revised course: Existing Daphne’s stores would sport a new name—Yalla Mediterranean—a fresh look, and a more encompassing Mediterranean menu. Even more, Wolfgram put growth back on the table for a concept that had reached upward of 80 units by 2010 before falling into bankruptcy and shuttering stores.

As Wolfgram leads Yalla’s renaissance, transforming existing Daphne’s locations into Yalla units and investigating new store openings, he hopes to propel
Yalla’s presence in California’s premier markets, including Los Angeles, the Bay Area, and San Diego, before shepherding the
concept’s growth beyond the state’s borders.

“But this is a long game, and we’ve got to make moves that make sense,” Wolfgram says.

As the cliché goes, though, that’s much easier said than done. For growth-minded quick serves, choosing the next spot to plant one’s flag is a momentous, potentially game-changing decision. Make the wrong move and a brand’s momentum could sink, swallowing money and resources that challenge leadership’s best-laid plans and weaken the concept’s public stature. Make the right move, however—one informed by the 3 Ps of people, place, and potential—and the brand continues chugging forward to a brighter, more robust future.

The first P:


In 2011, just two years after its debut in New York City, Luke’s Lobster invaded the nation’s capital, opening a storefront in Washington, D.C.’s Penn Quarter neighborhood. Luke’s Lobster cofounder Ben Conniff called the move to D.C. “the next natural step” for his seafood-peddling fast casual.

“Between New York and D.C., we saw a natural affinity between the type of food and the restaurants popular in each city, as well as a lot of people migrating back and forth between the two cities,” Conniff says.

There was, however, another crucial element. Cofounder Luke Holden’s brother, Bryan, was living in D.C. and was ready to ditch his corporate job for life on Luke’s frontlines.

“Having Bryan on the ground there was critically important because he was someone we could trust,” Conniff says. “That certainly made the move less daunting.”

Similarly, Hopdoddy Burger Bar, a five-year-old concept headquartered in Austin, Texas, moved into the Phoenix area in 2013, largely motivated by the fact that Guy Villavaso and Larry Foles—two of Hopdoddy’s original founders—and their Guy and Larry Restaurants group called Scottsdale, Arizona, home.

“We had boots on the ground and a pair of active founders who knew the market and had great intelligence they could share with us,” Hopdoddy CEO and president Dan Mesches says.

As Hopdoddy pursues expansion to markets across the southern half of the U.S., Mesches says, the ability to tap into industry colleagues with intimate knowledge of a given area continues to motivate its development decisions. “We don’t go to a place where we don’t know people,” he says.

It’s a sentiment that is doubly important for franchising brands, so many of whom lean on local franchisee groups, if not the owner-operator model, to drive growth.

For its 100 stores in Canada, Smoke’s Poutinerie founder Ryan Smolkin largely employed a single-unit development philosophy rooted in owner-operators present in the store and pushing the brand. Though Smolkin is shifting his strategy for growth in the U.S., selling territorial rights rather than single units in his quest to open as many as 800 U.S. stores over the next five years, the same truth holds: Smolkin needs well-positioned partners committed to growing with his upstart brand.

“That might mean we don’t enter a market for two weeks or two years,” Smolkin says. “In the meantime, though, we’ll focus on the partners we do have and growing the infrastructure around them rather than beating our heads against a wall and complaining about markets we’re not in.”

Phil Keiser, CEO and president of Culver’s, the 560-unit chain with outlets in nearly half of the nation’s 50 states, calls owner-operators with local ties necessary to his brand’s arrival in any new market. Having the right people in place always matters, Keiser says. Always.

“Great owner-operators are the trump card for us and what really makes [moving into a new market] go for us,” he says.

The Second P:


When investigating a new market, demographics and growth forecasts always play a key role. From disposable income and unemployment to age segmentation and, above all, population, hard data holds weight.

While Luke’s Lobster would be embraced in a mid-sized market, Conniff says, the company counters its high food costs with volume, which is why the 19-unit brand has limited its growth to densely populated urban markets like New York, Boston, and Chicago. “We need to sell a lot of lobster rolls, and that’s why sheer population is so important to us,” Conniff says.

For others, however, mid-sized and smaller markets make up for lower population counts with other sizable benefits, including slimmer costs of entry, less bureaucracy, and, particularly for brands with a distinct marketplace proposition, an opportunity to star in areas typically peppered with more traditional—and predictable—quick-service players.

“We absolutely like the smaller markets and have no qualms about entering these areas,” Keiser says, noting that Culver’s original restaurant sits in a Wisconsin town of 7,500 residents.

In Rockford, Illinois, a market of some 340,000 located just northwest of the Chicago metro area, Keiser says, Culver’s has enough stores in operation that it can afford to be on television and elevate the business to a point where it is advertising at an efficient and productive level. Furthermore, interstate locations around Rockford—and other strategically selected markets of a similar size—have helped reinforce the brand and spur interest in larger cities.

It’s a formula Culver’s has applied to other “next door” markets, such as Madison, Wisconsin, about 80 miles west of Milwaukee; South Bend, Indiana, which sits 90 miles east of Chicago; and Peoria and Bloomington, Illinois, two heartland markets that are about halfway between Chicago and St. Louis.

“We’re not afraid of smaller markets, and we really see some compelling advantages to them even if the population isn’t as dense,” Keiser says.


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